InterOil Corp.’s Antelope-2 vertical natural gas well in Papua New Guinea’s remote Gulf Province bounded to a world record Dec. 1, 2009, testing at a rate of 705 MMcf/d and 11,200 bc/d. The well obliterated the previous record for a vertical gas well, also set by InterOil with its Antelope-1. That well tested at 382 MMcf/d and 5,000 barrels of condensate per day, earning recognition from Guinness World Records.

As a next step, InterOil needs to raise money for infrastructure and additional drilling, with a view toward building a LNG plant to monetize all this gas.

But this latest test may not tell the whole story of the play’s potential. InterOil, a public independent based in The Woodlands, Texas, and Cairns, Australia, plan to drill the well 1,100 ft (335 m) deeper to test potential for an oil leg in a deeper formation. The company may also drill its first horizontal leg from the Antelope-2 vertical hole. InterOil is developing the large Antelope structure, which also contains reef facies.

InterOil’s chairman and chief executive officer Phil Mulacek announced the world-record results in the company cafeteria onsite in steep, ridged terrain covered by jungle — except for the location cleared for well and camp operations. Like most of the executives and crew on hand, his shirt was wringing wet from the base temperature of 89ºF (31.7ºC) and from the huge gas flare kicking the temperature up to 120ºF (49ºC).

At least one other company, P3 Global Energy Co. Ltd. of Thailand, wants to build an $11 billion LNG plant.

Describing the well’s test results, Mulacek said, “That’s 100,000 barrels of oil equivalent. This demonstrates that the size of this reservoir is world-class.”

At full production, he added, this single well could supply two LNG trains.

At a depth of some 1,224 ft (373 m), the Antelope-2 has a thinner net pay column than the Antelope-1 at 2,400 ft (733 m), but porosity at the latest well is 60% higher, Mulacek said. Overall porosity at Antelope-1 was about 14%.

As production tests from the company’s wells in the Gulf Province increased, so did the challenges.

By the time the company drilled the Antelope wells, it had to import chokes from Saudi Arabia. It tested the Antelope-1 on a 3.5-in. choke and went up to 4.375 in. for the Antelope-2.

At the same time, the company has throttled back the time required to drill a well in this remote location. Including preparation, the time has decreased from nine months to an estimated 90 days, according to Wayne Andrews, vice president of capital markets.

InterOil increased the blowout-preventer capacity to 5,000 psi to make sure it could handle downhole pressures that, so far, have reached 3,800 psi.

Major concession

InterOil increased the blowout-preventer capacity to 5,000 psi to make sure it could handle downhole pressures that, so far, have reached 3,800 psi.

The wells are in only a small part of the company’s concession of 4.6 million acres (4 million acres operated) in southeastern Papua New Guinea, but they lay the foundation for InterOil’s future strategy and form a logical expansion for operations already in progress. Overall, the company holds 80% of the country’s Eastern Papuan Basin. It also controls an offshore tract for potential future development.

InterOil entered Papua New Guinea in 1999, when no other companies were drilling the Eastern Papuan Basin. Operators had found gas in the basin in the 1950s and 1960s, but without ready markets, drilling faded. Except for the InterOil wells, only two wells had been drilled in the basin since 1970. During the same period, 39 wells were drilled in the rest of the country.

InterOil has built a vertical operation during its time in Papua New Guinea. It built the nation’s only refinery and set up service stations and a delivery system, with the government’s blessing.

Gaylen Byker, a director of InterOil, obtained the first direct loan for the company from the Overseas Private Investment Corp. (OPIC), a government group that helps small businesses direct private capital from the US to create projects that help in the economic and social development of less-developed countries. Until that time, OPIC had only provided loan insurance.

InterOil has tallied a series of firsts for the country: It was the first to run Falcon gravity and magnetic surveys and the first to use a Chinese-built drilling rig that could be moved by helicopter and had the capacity to drill horizontal wells. It was the first to use downhole-deployment valves so it could use managed-pressure drilling in the producing carbonate section that ran to some 2,400 net feet of pay in the Antelope-1.

The dolomite was so permeable, the company lost fluids to the formation while drilling. Managed-pressure drilling helped solve the problem. It even used two downhole-deployment valves on one well.

InterOil also was the first to take sidewall cores under pressure.

With its expansion into the production side of the business with the Elk and Antelope wells, “We’re just getting started,” Andrews said.

Seeking partners

As a next step, InterOil needs to raise money for infrastructure and additional drilling, with a view toward building a LNG plant to monetize all this gas.

The well sites lie some 40 miles (64 km) inland and about 3 miles (4.8 km) from the navigable Purari River. The company can bring in supplies and carry out gas liquids by barge, but the massive gas supplies will have to wait on a pipeline to be built down the river and onward to the coast, connecting with a proposed LNG plant on InterOil’s refinery site west of Port Moresby.

The company already applied to the government for authorization to build the LNG plant, and approval was granted Dec. 10, 2009.

In the near future, the company wants to build a stripping plant on the Purari River, pipe gas to the plant, strip out the liquids, and return the gas to maintain downhole pressure. That operation would require a major financial investment for compression.

InterOil has committed to EDG Consulting Engineers for a feasibility study on a processing plant for Elk-Antelope field. The goal is to produce 400 MMcf/d to yield 9,000 b/d of liquids, or 22.4 bbl of condensate per thousand cubic ft of gas.

LNG competition

The LNG plant is the key to midstream operations. Now that the company has obtained government approval, InterOil and its investors must find a market for the output. It will compete for customers with the proposed nearby PNG LNG plant supplied from ExxonMobil’s Hides field, also in the Papua New Guinea highlands, but a significant distance north of the Elk-Antelope installation.

ExxonMobil had planned to build a pipeline from Hides and nearby fields to the east coast of Australia, but that plan fell through when the company could not find enough buyers. It switched to the US $11 billion LNG solution as the alternative and recently obtained funding from the U.S. Ex-Im Bank.

At least one other company, P3 Global Energy Co. Ltd. of Thailand, wants to build an $11 billion LNG plant.

If all goes well, InterOil would like to move its first shipment of LNG from its first train in 2015 and begin shipments from the second train a year later. The company would produce more than 82 MMboe per year in liquids and gas from 2016 through at least 2024.

The plan, at least initially, involves just the resources InterOil has found to date on its Petroleum Prospecting License (PPL) 238. That license area contains other prospects also named for animals — Mountain Lion, Bighorn, Wolverine, Elephant, etc.

In all, InterOil has 40 additional prospects on its property that it wants to investigate.